Marketing decisions, Managerial Accounting

Marketing refers to the promotion of products, especially advertising and branding. But marketing includes product management, pricing, promotion and distribution of a product or a service.

One of the most important operating decisions that a management must make is the pricing decision. Pricing refers to the assignment of a selling price to a product or service provided by the company. If the primary objective of pricing is to maximize profits, cost analysis can help select the price that will yield the greatest profit.

Pricing decisions may be influenced by internal factors, such as costs and profit objectives, and by external factors, such as competitor's pricing actions or regulatory pricing on profit guidelines.

Under normal circumstances, the prices are based upon total cost of sales so as to cover both fixed as well as variable cost and in addition to provide for certain desired margin of profit. Sometimes, it may become necessary to reduce the selling prices to the level of marginal cost or even below the marginal cost.

Target cost is the estimated cost of a product that enables a company to remain and compete in the market in the long-run. Target costing is a method of costing which is intended to reduce cost, where such reduction is aimed at the entire life cycle of product.